SEBI issues confirmatory order against Brightcom Group for fraudulent practices

The Securities and Exchange Board of India (Sebi) conducted an investigation into a preferential issue of shares and warrants, during which it was discovered that some allottees made only partial payments, according to a Moneycontrol report.

Subsequently, on August 22, 2023, Sebi issued an interim order and on February 28, the markets regulator issued a confirmatory order. In this order, Sebi’s Whole-time Member Ashwani Bhatia recommended forwarding the order to the Enforcement Directorate (ED) for further examination, as certain transactions involved foreign exchange and may contravene laws related to foreign exchange dealings.

One of the directives that have been validated pertains to the regulator’s instruction to the company’s promoter and CMD, Suresh Kumar Reddy, prohibiting him from assuming any significant managerial role (KMP) in any listed company or its subsidiaries. Additionally, he is barred from engaging in transactions within the securities market until further notice.

“The prima facie findings that the Company had funded its own preferential allotments and had indulged in round tripping of funds continue to sustain. It has clearly emerged that in case of certain Notices, personal loans advances by them abroad to Mr. Suresh Reddy and his private companies / entities were being repaid in India through the mechanism of allotment of shares of BGL, a listed company, in preferential issues for free or at partial consideration, at the cost of public shareholders of BGL,” the order stated.

It further said, “It is apparent that the company had loose internal financial controls and its CMD was running the Company as a private concern. The CMD treated BGL as his private enterprise, disregarding the large number of public shareholders and their interests. There were no checks and balances within BGL of the manner in which financial transactions were recorded.”

The regulatory authority has conveyed its bewilderment regarding the manner in which the CMD was permitted to gain from the company’s shares without fulfilling the obligation of payment for them.

The order further said, “The manner in which LLPs were formed to benefit Mr. Reddy is truly baffling. By nominating himself as a limited partner in the LLPs at a later date, Mr. Reddy circumvented SEBI guidelines for promoter lock-in for shares allotted in a preferential issue. Further, it now emerges that these LLPs pledged shares to financial institutions and raised debt on the strength of the same. It is understood that the financial institutions have invoked their pledges and sold the securities. It thus appears that Mr Reddy was advanced money against unpaid shares and by pledging them, he made money without actually paying for them.”

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Published: 28 Feb 2024, 06:29 PM IST